(Business Wire) — Oakley (NYSE:OO) has announced financial results for its third quarter ended September 30, 2001.
Net sales increased 6.5 percent to a third-quarter record 114.0-million dollars, compared to 107.0-million dollars in the third quarter of 2000. International net sales increased 19.8 percent to a record 62.4-million dollars. while U.S. net sales decreased 6.2 percent to 51.6-million dollars, compared with 52.1-million dollars and 55.0-million dollars, respectively, in last year's third quarter.
Net income for the quarter totaled 14.4-million dollars, or $0.21 per diluted share, compared to net income of 17.4-million dollars, or $0.25 per diluted share, in last year's third quarter. Revenue and net income were in line with the company's expectations, which were lowered in early August to reflect a significant reduction in orders from the company's previous largest customer, Sunglass Hut, after Luxottica Group, SpA, acquired the retail chain in April 2001.
"This quarter marked another key turning point for Oakley," said Chairman and Chief Executive Officer Jim Jannard. "In response to a significant shift in our relationship with Sunglass Hut, we successfully launched several strategic distribution initiatives designed to strengthen our presence at retail and make a broader assortment of our six product categories more accessible to consumers. Strong international growth and an 80-percent increase in new category revenue reflect the enduring strength of the Oakley brand."
Oakley recently expanded its relationship with Foot Locker and Champs Sports, and enhanced its partnership with Finish Line, Sport Chalet, and other regional and national accounts. Additionally, Oakley has entered into agreement to acquire sunglass retailing chain Iacon Inc., which operates a chain of approximately 40 mall-based sunglass specialty stores located throughout the United States, with a concentration in the sunbelt regions: Sunglass Designs, Sporting Eyes, and Occhiali da Sole.
"The full effect of these additional points of distribution may not be felt for some time," said Oakley Chief Operating Officer Link Newcomb. "However, we believe we are well on our way to eventually replacing the lost Sunglass Hut business, which in the third quarter alone declined over eighteen-million dollars, or 91 percent, from last year's third quarter, and led to a fourteen-percent decline in worldwide gross sunglass sales."
Reflecting the continued importance of the company's product diversification strategy, new categories represented 28.3 percent of total third quarter gross sales, growing 79.9 percent to 33.2-million dollars from 18.5-million dollars in last year's third quarter and up 51.6 percent from 21.9-million dollars in the second quarter this year. Each of the new categories grew at least 31 percent over last year, with footwear posting triple-digit growth.
Oakley's continued momentum is reflected in the September 30, 2001 backlog of approximately 40.1-million dollars, a 12.3-percent increase over 35.7-million dollars one year ago. Included in this growth is a 129-percent increase in pre-booked spring footwear and apparel products, partially offset by a lower sunglass backlog primarily due to reduced X-Metal eyewear backorders as the company's X-Metal production capacity has been expanded in 2001 to better meet demand.
"Without question, an already softening global economy was aggravated by the September terrorist attacks resulting in a heightened level of economic uncertainty and a further softening of the near-term retail environment," Newcomb said. "In spite of the momentum from our new distribution strategies, these factors have combined to dampen our growth expectations for the remainder of the year. As a result we now expect fourth quarter 2001 net sales of approximately 90-million dollars and earnings per share of $0.09 compared to $0.14 a year ago."
For 2002, Newcomb said the company is anticiipating revenue growth between ten and 30 percent and pre-tax earnings growth landing somewhere between zero and twenty percent. "These ranges are wider than we would normally offer, reflecting these uncertain times," said Newcomb. "However, we believe our existing strategies of product innovation, expansion of retail partnerships, and continued product diversification, coupled with a strong brand and an outstanding balance sheet, provide us with a solid foundation for the long term."
Oakley Third Quarter Financial Analysis
àƒ,à'•Oakley's international net sales increased 19.8 percent (25.2 percent on a constant dollar basis) to a third-quarter record $62.4 million, representing 54.7 percent of total sales in the quarter.
àƒ,à'•Sales growth was strong in all major markets, with the highest increases in Latin America, Japan and Europe.
àƒ,à'•Third quarter U.S. net sales decreased 6.2 percent to $51.6 million. U.S. net sales to Sunglass Hut, which until June 2001 was the company's largest customer, declined 97.5 percent to $0.4 million compared with $15.8 million in the same period last year. This decline was partially offset by a 30.6 percent increase in sales to the company's diverse base of specialty retail accounts, which totaled a record $51.2 million.
àƒ,à'•Gross margins in the third quarter were 58.6 percent, compared with 60.8 percent in last year's third quarter, due to the negative leverage caused by the decline in sales to Sunglass Hut, and a greater contribution from the company's new footwear, apparel and goggle products which carry lower gross margins than sunglass products.
àƒ,à'•Operating expenses totaled $45.6 million, or 40.0 percent of sales, compared with $37.5 million, or 35.1 percent of sales in the prior year, as the 91 percent decline in worldwide sales to Sunglass Hut resulted in negative operating leverage. Selling expenses reflected increased advertising as part of the company's strategic effort to increase brand awareness and drive demand. General and administrative expenses increased primarily due to the increased personnel and infrastructure necessary to support the anticipated future growth in business.
àƒ,à'•Operating income decreased 23.2 percent to $21.2 million compared with $27.6 million in last year's third quarter.
àƒ,à'•Operating margins for the quarter were 18.6 percent of sales compared with 25.8 percent in the prior year period.
Tax Rate for 2001
As a result of a one-time tax benefit associated with the company's foreign operations, the effective tax rate for the third quarter was 30 percent, down from 35 percent for the previous year. The company expects the full year 2001 tax rate to be 30 percent, returning to 35 percent for the first quarter of 2002.
Stock Repurchase Program
On December 11, 2000, the company's board of directors authorized a $20 million stock repurchase program to occur from time to time as market conditions warrant. During the third quarter, the company repurchased 250,200 shares for approximately $3,152,000 at an average price of $12.60 per share. As of September 30, 2001, approximately $4.4 million remains available under the current authorization.
Selected Third Quarter Highlights
àƒ,à'•International net sales grew 19.8 percent to a record 62.4-million dollars.
àƒ,à'•New category sales from footwear, apparel, prescription eyewear, and watch products grew 79.9 percent to 33.2-million dollars.
àƒ,à'•Net income of $0.21 per share in line with company's revised expectations.
àƒ,à'•New distribution initiatives successfully launched
àƒ,à'•Introduced Switch, an innovative ceramic-encased magnesium eyewear frame Oakley, Inc.